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M-KOPA, the pioneering Kenyan company known for bringing pay-as-you-go solar power to rural households, is grappling with a growing challenge: recovering debts from defaulting customers.

The company has revealed staggering figures that highlight the cost of pursuing delinquent payments, a significant burden for an enterprise that has been a lifeline for millions of Kenyans.

With 2.1 million customers in Kenya, M-KOPA has revolutionized access to electricity through an innovative “Buy-Now-Pay-Later” model, offering solar home systems and other electronic devices to families who previously had no access to the national power grid.

Since its founding in 2012, the company has expanded its reach, providing affordable energy to more than 4 million people across sub-Saharan Africa. Yet despite its massive impact, M-KOPA faces a costly dilemma: how to recover unpaid debts from those who have defaulted on their payments.

The company’s recent disclosure brings this challenge into sharp focus. It would cost an estimated Sh5.22 billion (USD 40 million) to trace and pursue 47,625 customers who have defaulted on their payments—a group representing just 3% of its total customer base but a significant financial strain on the company.

An innovative model, but at what cost?

M-KOPA’s business model is both revolutionary and simple. Customers make an initial deposit of Sh2,999 (USD 23.23) for a solar home system, followed by daily installments as low as Sh40 (USD 0.31) via mobile money platforms.

If a customer fails to make a payment, M-KOPA remotely deactivates the system until the outstanding balance is paid. This pay-as-you-go mechanism has been hailed as a game-changer for rural households, many of whom are off the grid and rely on expensive, inefficient alternatives like kerosene.

However, remote deactivation has proven to be only a partial deterrent. Despite M-KOPA’s efforts, a sizable number of customers fall behind on their payments, and tracking them down—especially in remote areas—poses a formidable challenge.

In a recent $6.8 million tax dispute with the Kenya Revenue Authority (KRA), M-KOPA made a case for writing off Sh308.5 million (USD 2.4 million) in bad debts.

The company successfully argued that pursuing these debts through debt collectors or litigation would cost an estimated 16 times the value of the defaulted amountMok—a staggering example of how costly and inefficient debt recovery can be in Kenya’s largely rural and informal economy.

The challenges of debt recovery

The hurdles M-KOPA faces in recovering debts are numerous and deeply entrenched in the realities of Kenya’s socio-economic landscape.

Many of M-KOPA’s customers live in remote regions, far from major urban centers, making it difficult to track them down. Geographic isolation combined with limited infrastructure means that even sending a debt collector can be prohibitively expensive.

M-KOPA’s efforts to recover debts often go ignored. Many customers simply stop responding to phone calls, text messages, or even the threat of being listed with credit bureaus, which has little impact on those who rely on informal financial systems.

Another major issue is that once some customers gain access to grid electricity, they abandon M-KOPA’s solar products, leaving behind unpaid balances. As grid expansion continues in Kenya, this trend is likely to grow, presenting yet another hurdle for the company.

Despite these challenges, M-KOPA has managed to maintain an impressive 93% recovery rate. This success speaks to the strength of the company’s operational model and the high demand for its products. Yet the cost of pursuing defaulters looms large, and as M-KOPA scales its operations, the issue of debt recovery remains a critical concern.

M-KOPA’s battle to collect outstanding debts underscores the broader difficulties that innovative companies face when trying to serve low-income populations in developing economies.

On the one hand, the company has made transformative strides, bringing clean energy and affordable financing to millions of people. On the other hand, it is forced to confront the stark economic realities of doing business in a region where traditional methods of debt collection often fall short.

Balancing act

M-KOPA’s struggle with delinquent payments is a reflection of the broader challenges faced by companies offering affordable, innovative solutions in Africa. For many rural households, solar energy has been a gateway to progress—a way to power lights, charge phones, and stay connected to the wider world. But for M-KOPA, the balance between accessibility and financial sustainability is delicate.

The company’s experience also highlights the importance of building robust systems for debt recovery, especially as more firms in Kenya and across Africa embrace similar pay-as-you-go models for essential services like energy, water, and even internet access.

In the coming years, as M-KOPA continues to grow and expand its offerings, the question remains: how will it navigate the complex terrain of debt recovery while continuing to provide affordable solutions to the millions who rely on its services? For now, the company’s journey reflects both the promise and the perils of Kenya’s rapidly evolving solar landscape.